We Knew Millennials Were Drowning in Debt. Now We Have Ugly Details.

When did you feel like an adult? For past generations, the first full-time job, first home or maybe the first child heralded adulthood. But 75% of today’s young adults equate adulthood with financial independence, capturing the challenges this mix of millennials and Gen Z face as they try to wean themselves from their parents’ support.

It is one of the findings of a survey released Thursday by Bank of America Merrill Lynch/Age Wave, which defines young adults as a group of 75 million people composed mostly of millennials, but also includes the older portion of Gen Z, born after 1995.

Drowning in debt

If there is one common trait among this cohort it is the unprecedented level of student and credit-card debt hanging over them. Nearly 80% of early-adult households have some sort of debt, with those 18 to 34 years old holding a total of about $2 trillion in debt. That debt impinges on their ability to save for retirement or even allow them to just get by without some assistance from their parents.

Between 2003 and 2012, the share of students with total debt above $40,000 increased from 2% to 18%, and college graduates with larger loan payments may not only reduce their contributions to a 401(k) plan but not participate at all, potentially raising their financial vulnerability over time, according to a separate 2018 paper co-written by Matthew Rutledge at the Center for Retirement Research at Boston College.

Servicing that debt makes it harder to buy a home or start a family. It also affects retirement savings. Young adults with debt contribute only about half the amount to their 401(K) accounts as those without debt, according to Merrill Lynch. And one in four who managed to start spending have pulled from their accounts to pay off debt.

When it comes to paying off debt or funding retirement, financial advisers tend to say do both. Many factors go into the advice, including the interest rate on that debt, especially given the historically low rates over the past decade. But at a minimum, most advisers encourage clients to contribute at least enough to a retirement plan to get the employer match. As for parents willing to help their children, contributing to a Roth IRA may be more beneficial than paying for the phone bill.

Young adult gender gap

The survey also sheds light on how the wealth gap that women face through their lives is playing out with this segment of the population. The good news: About 42% of millennial women have bachelor’s degrees or higher. That is higher than the 31% of millennial men getting a degree and also much larger than the 25% of baby boomer women. While career choice, promotion opportunity and breaks for care-giving contribute to a gender pay gap, higher education should help women at least start their careers at a higher wage trajectory, which could also help close the wealth gap.

More good news: While about the same share of men and women rely on parental assistance early in adulthood, less than half of women 30 or older receive financial help from their parents— compared with 62% of men, according to Merrill Lynch.

The not so good: Women carry about two-thirds of the $1.5 trillion of total student debt outstanding. More of them pursue undergraduate and advanced degrees than do men, and they tend to take out higher levels of debt, on average. They also take longer to pay it off (enter pay gap: The median weekly earnings of full-time employed 25- to 34- year-olds is $864 for men but $766 for women, according to the Bureau of Labor Statistics.)

When it comes to financial priorities, Merrill says more women ranked paying off debt and saving for the future as high priorities, compared with men, who ranked enjoying life now as a priority. That should get women off to a better start for retirement savings, but there is still one big problem. Only 27% of early-adult women were likely to hold investments outside of an employer-sponsored retirement plan, compared with 46% of men.

Underscoring the problem—and possibly opportunity—for the financial-advice industry: Women are half as likely as men to be working with a financial adviser. Despite years of talk, the advice industry is male-dominated and surveys routinely show that women have felt underserved. “It gives me hope that this generation of women are focusing on some of the right things like paying down debt and saving for the future,” Lisa Margeson, Merrill’s head of retirement client experiences, tells Barron’s. “But we still need to focus as an industry on giving guidance on investing specifically. That is the crucial next step to put that lasting piece in place for [women] to achieve financial independence and empowerment on their own terms.”

Mom and Dad may get paid back

The survey also offered a glimmer of good news for parents who have been supporting their adult children. About 85% of the early adults surveyed said they felt a responsibility to help their parents financially if they need it and 82% said they felt it was their responsibility to let their parents move in with them, if needed.

Parents may want to get that in writing, because many of them will need assistance for care-giving and other needs in old age—especially if supporting adult children has drained their retirement savings.

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